If you have been relying on your credit card to help pay the bills, you’re not alone. New research suggests that South Africans are still on a continuous path to overindebtedness. TransUnion has found that credit balances have increased across all categories. However, relying on your credit card to pay household expenses is not a sustainable solution.
Using your credit card to help pay the monthly household expenses will eventually catch up with you. Many consumers are starting to feel the pressure. 32% of South Africans have fallen behind on credit card payments, and the high-interest rates make it very challenging to pay off these accounts.
With the right strategy, you’ll be debt-free in no time.
Here are 4 strategies that you can use to pay off your credit card debt as soon as possible.
Choose the strategy that you believe would work the best for you and most importantly, stick to it!
1. The snowball method
The snowball method is one of the best ways to pay off your debt. Using the snowball method, you’ll pay off your debt in order from the smallest debt balance to the largest balance.
This method is very successful and popular because it induces a series of small wins. And this will motivate you to keep paying off your debt.
Here’s how this method works:
Step 1: Pay the minimum amount for all your accounts.
Step 2: Put as much extra money as possible towards the account with the smallest balance.
Step 3: Once you’ve paid off the debt with the smallest balance, take the repayment amount and add it towards the next smallest debt account. By adding the original repayment amount to your next smallest account, your repayment amount will increase.
Step 4: Continue this process until all your credit card debt has been paid off.
With this method, there’s also the potential to improve your credit score as well. The quicker you pay off your debt the better your credit score will be.
For a detailed explanation of the snowball method read our article here.
2. The debt avalanche method
If you want to pay off your credit card debt and save some money, the debt avalanche method is for you.
The debt avalanche method tackles the debt account with the highest interest rate first. Because credit cards have extremely high-interest rates, this method may save you money along the way. By reducing the amount of interest you pay towards your debt, you’ll be able to pay more towards accounts that don’t carry such a high-interest rate. By eliminating these high-interest rate accounts first, you won’t debt will cost you less in the long run.
To use this method successfully, budget as much money as possible towards your debt repayments. Focus most of your debt repayment budget on the debit account with the highest interest rate. Once that account has been paid off, use that repayment amount and put it towards the next highest interest rate account. Continue this process until you’re debt-free.
For a detailed explanation of the avalanche method click here.
3. Control your spending
There’s no doubt that the last year and a half has been difficult to cope with financially. 34% of South Africans have fallen behind on household bills and many of us still rely on our credit cards to help make ends meet.
Your credit card can be your saving grace when you’re struggling financially. But it can also be a financial burden. If you’re not careful, using your credit card could lead to overspending. Which means you’re spending more than what you can afford. In some cases, this is what causes consumers to become over-indebted.
If you’re using your credit card recklessly and buying things you don’t need, you’ll end up overspending. It can be very difficult to break that habit.
If your debt is still manageable, create a monthly budget to help give you clear insight into your spending.
By taking control of your monthly spending you can prioritize your debt and become debt-free over time.
Once you’ve written down all your expenses, you can try to find ways to free up enough money to pay towards your debt.
Check out our blog post How to Budget Monthly to help you take control of your spending. This post includes a free budgeting spreadsheet.
4. Restructure your debt with debt review
Credit cards are easy to spend on. But if you’re constantly maxing your card limit, only paying the minimum repayment, and you’re using it to pay for living expenses every month, it may be time to seek legal assistance with your debt.
When you’re in a position where you can’t reduce your monthly spending any further and you don’t have any extra money to pay towards your debt, restructuring your debt in an affordable manner could be your financial saving grace.
High-interest rates make it near impossible to gain traction on your repayments when you rely on your credit card for monthly living expenses.
Debt Review is a legal process that protects the consumer and provides an affordable option for overindebted consumers. The process allows you to restructure your debt into a reduced single repayment by extending the repayment terms. That way you’ll have more money available for monthly living expenses – and you won’t need to live off your credit every month
Debt review is a viable solution that protects you as a consumer and ensures that you are able to get out of debt.
If you’re in a position where you can’t afford your debt repayments or your living expenses anymore, get in touch with Debt Rescue today to discuss your options.
Debt Rescue is South African #1 debt counsellor. We have helped thousands of consumers take control of their debt, we can help you too. Please leave your contact information in the form below and one of our consultants will contact you shortly.